IIJ Announces First Six Months Financial Results For The Fiscal Year Ending March 31, 2017

TOKYO, Nov. 08, 2016 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (NASDAQ:IIJI) (TSE:3774) today announced its consolidated financial results for the first six months of the fiscal year ending March 31, 2017 ("1H16", from April 1, 2016 to September 30, 2016). 1
Highlights of Financial Results for 1H16
 
Revenues JPY74,123 million (up 13.5% YoY)
Operating Income  JPY1,948 million (down 24.0% YoY)
Net Income attributable to IIJ  JPY1,108 million (down 33.0% YoY)

Overview of 1H16 Financial Results and Business Outlook

"As announced on November 4 th, we have revised down our financial targets for the fiscal year ending March 31, 2017, principally because our aggressive business investments and services developments have been taking longer than expected to start contributing to revenues accumulation. The revised annual revenue is JPY158.0 billion, JPY1.0 billion down from our initial target of JPY159.0 billion. The revised operating income is JPY5.0 billion, JPY2.3 billion down from our initial target of JPY7.3 billion," said Eijiro Katsu, COO and President of IIJ.

"As we expect great market opportunities in the middle term with more advanced cloud usage, IoT type of network systems adoption and greater demand for security by many Japanese entities, consumer mobile service's market explosion and so on, we've been making proactive business investments including the commencement of "IIJ GIO Infrastructure P2" and "IIJ Omnibus Services" 2 later last year. We're also engaged in IoT service development 3, continuous enhancement of security services 4 and preparation for Full-MVNO 5. As for IoT, we're going to launch "IIJ IoT Service" which offers functions such as network, cloud and devise control elements required for IoT systems. With these required components, we've received several orders from local governments very large-scale multiple-year projects in which cloud, security, system and network are mostly outsourced and we expect recurring revenue growth should become strong the next year with these kinds of full-outsourcing trend," said Katsu.

"In this first half, we continued to have strong year over year revenue growth rate of 13.5%. On the other hand, in addition to the current relatively high level of increasing costs due to the implementation of business expansion strategy, we saw SI gross margin deterioration as an additional factor impacting our operating income. The low SI gross margin was temporarily, we believe, by combination of factors such as low productivity of systems engineers, 6 temporal profit deterioration due to the delay in offering some functions of our foreign exchange system ASP service, low profitability in a certain construction project, and weaker than expected systems operation and maintenance revenue with the cancellation of certain relatively large projects from 1Q16. Although 1H16 total revenues slightly exceeded our initial target, we missed the operating income target and it decreased by 24.0% from 1H15," continued Katsu.

"For the remaining half, we expect low productivity of systems engineers to improve based on the current SI projects situation. However, based on the current services order accumulation, we'd miss the revenue targets of new services such as "IIJ GIO Infrastructure P2" and "IIJ Omnibus Services" which should increase but not as strongly as our initial expectation. Since the depreciation for these new services have already begun, the revenue gap will directly impact our operating income. Because Japanese companies are conservative with their systems, especially with larger and mission-critical ones, the lead time, including clients' internal judgments and preparation, takes longer than expected. And, some delays of our services developments would have some impacts as well. Another issue that would impact our operating income against our initial expectation is the cost related to mobile services. We increased leasing MVNO bandwidth largely during 2Q16 along with increasing traffic trend; therefore, this recurring type cost for MVNO infrastructure would exceed our initial expectation in 2H16. Although the excessive cost is not expected to become larger in 2H16 and the mobile services' gross margin amount is expected to increase year over year, it would continue to impact our network services' gross margin against our initial expectation. Regarding the details about our revision, please refer to our press release titled "IIJ Revises its First Half and Full-Year Financial Targets for FY2016," said Katsu. 7

"The income level for this fiscal year is to be weak. However, we believe our recent business developments for future sustainable growth should contribute to stronger revenue growth for the middle term which should ultimately lead to income growth. It's inevitable that the role of IIJ to be larger and more critical along with the progression of IT usage such as IoT and BigData. We believe we'd be able to return to operating income growth the next fiscal year because SI deterioration is expected to be temporary, costs and revenues time-gap for new services would be diminished by the continuous revenue accumulation and mobile profitability to improve by gathering many more diversified mobile traffic 8. Although the operating income is expected to be 1 or 1.5 years delayed from what we initially expected at the beginning of this fiscal year, we believe strong revenue would generate continuous operating margin improvement. Therefore, we decided the dividend targets to remain unchanged (annual dividend of JPY27.00 per share) and to implement share buyback of JPY1.5 billion," concluded Koichi Suzuki, Founder, CEO and Chairman of IIJ.

1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP. All financial figures are unaudited and consolidated.

2 "IIJ GIO Infrastructure P2" launched in November 2015 is our new cloud service platform to promote Japanese enterprises demand to migrate their core business platform to cloud. "IIJ Omnibus Service" launched in September 2015 incorporates SDN and NFV technologies, automatically offers several network elements. For details please refer to our pree releases titled "IIJ to Launch 'IIJ GIO Infrastructure P2' - A Next-generation Cloud Service" at http://www.iij.ad.jp/en/news/pressrelease/2015/0714.html and "IIJ to Launch 'IIJ Omnibus Service' - A New generation of Cloud Networking Services" at http://www.iij.ad.jp/en/news/pressrelease/2015/0715.html

3 "IIJ IoT Service" will be launched in November. For detail, please refer to our press release titled "IIJ to Launch the IIJ IoT Service, a New IoT Platform that Combines Networks with the Cloud" which can be found at http://www.iij.ad.jp/en/news/pressrelease/2016/0719.html

4 For example, we have launched consultation service to help companies implement CSIRT (Computer Security Incident Response Team) and expanded functions for our email security gateway service, recently.

5 For detail, please refer to our press release titled "IIJ Begins to Engage in a Full MVNO for Enhanced MVNO Business" which can be found at http://www.iij.ad.jp/en/news/pressrelease/2016/0830.html. Related FAQ is available at http://www.iij.ad.jp/en/ir/news/2016/pdf/20160830_fullMVNO_E.pdf

6 We had low productivity of systems engineers mainly because 1) of the projects already recognized as revenue in FY2015 (1Q16), 2) we assigned system engineers to handle several large projects while others were postponed (2Q16) , and 3) some prospective orders including cloud-related systems required pre-sales activities conducted by engineers (2Q16).

7 Please refer to our press release titled "IIJ Revises its First Half and Full-Year Financial Targets for FY2016."

8 As we purchase mobile network from NTT Docomo on the unit of bandwidth, once we gather various types of mobile traffic that should lead to improved utilization of network and thus profitability.

1H16 Financial Results Summary
Operating Results Summary
  1H15 1H16 YoY Change
  JPY millions JPY millions %
Total revenues 65,334 74,123   13.5  
Network services 38,000 44,836   18.0  
Systems integration (SI) 23,725 25,768   8.6  
Equipment sales 1,638 1,467   (10.5 )
ATM operation business 1,971 2,052   4.2  
Total costs 53,626 62,275   16.1  
Network services 30,501 36,715   20.4  
Systems integration (SI) 20,341 22,993   13.0  
Equipment sales 1,480 1,343   (9.3 )
ATM operation business 1,304 1,224   (6.2 )
Total gross margin 11,708 11,848   1.2  
Network services 7,498 8,120   8.3  
Systems integration (SI) 3,385 2,775   (18.0 )
Equipment sales 158 124   (21.8 )
ATM operation business 667 829   24.4  
SG&A expenses and R&D 9,145 9,900   8.3  
Operating income 2,563 1,948   (24.0 )
Income before income tax expense 2,647 2,105   (20.5 )
Net income attributable to IIJ 1,652 1,108   (33.0 )

Segment Results Summary
  1H15 1H16
  JPY millions JPY millions
Total revenues   65,334     74,123  
Network services and SI business   63,557     72,257  
ATM operation business   1,971     2,052  
Elimination   (194 )   (186 )
Operating income   2,563     1,948  
Network service and SI business   2,056     1,281  
ATM operation business   576     734  
Elimination   (69 )   (67 )

We have omitted segment analysis because most of our revenues are dominated by network services and systems integration (SI) business.

1H16 Revenues and Income

Revenues

Total revenues were JPY74,123 million, up 13.5% YoY (JPY65,334 million for 1H15).

Network services revenue was JPY44,836 million, up 18.0% YoY (JPY38,000 million for 1H15).

Revenues for Internet connectivity services for enterprise were JPY10,577 million, up 26.6% YoY from JPY8,357 million for 1H15 mainly due to an increase in mobile related services revenues along with an expansion of MVNE business clients' business volume.

Revenues for Internet connectivity services for consumers were JPY10,328 million, up 56.6% YoY from JPY6,596 million for 1H15, mainly due to revenue growth of "IIJmio High-speed Mobile/D services," consumer mobile services which offer inexpensive data communication and voice services with SIM cards.

Revenues for WAN services revenues were JPY13,289 million, up 5.8% YoY compared to JPY12,558 million for 1H15.

Revenues for Outsourcing services revenues were JPY10,642 million, up 1.5% YoY from JPY10,489 million for 1H15.
Network Services Revenues Breakdown
  1H15 1H16 YoY %Change
  JPY millions JPY millions  
Internet connectivity services (Enterprise) 8,357 10,577   26.6  
IP service*1 4,773 4,873   2.1  
IIJ FiberAccess/F and IIJ DSL/F 1,538 1,518   (1.3 )
IIJ Mobile service (Enterprise) 1,912 4,072   113.0  
IIJ Mobile MVNO Platform Service*2 699 2,573   267.8  
Others 134 114   (14.8 )
Internet connectivity services (Consumer) 6,596 10,328   56.6  
IIJ 5,276 9,226   74.9  
IIJmio High Speed Mobile Service*3 4,564 8,035   76.1  
hi-ho 1,320 1,102   (16.6 )
WAN services 12,558 13,289   5.8  
Outsourcing services 10,489 10,642   1.5  
Total network services 38,000 44,836   18.0  

*1. IP service revenues include revenues from the data center connectivity service.*2. From 1Q16, the revenue from "IIJ Mobile MVNO Platform Service", which is included in "IIJ Mobile service (Enterprise)", is disclosed. "IIJ Mobile MVNO Platform Service" provides MVNO platform to our MVNE clients.*3. From 1Q16, the revenue from "IIJmio High Speed Mobile Services", which is included in "Internet connectivity services (Consumer)" provided by IIJ, is disclosed.
Number of Contracts and Subscription for Connectivity Services*1
  as ofSep. 30, 2015 as of Sep. 30, 2016 YoY Change
Internet connectivity services (Enterprise) 348,345 721,691   373,346  
IP service (1Gbps-) 343 410   67  
IP service (100Mbps-999Mbps) 513 559   46  
IP service (-99Mbps) 715 642   (73 )
IIJ Data center connectivity service 272 262   (10 )
IIJ FiberAccess/F and IIJ DSL/F 70,071 72,102   2,031  
IIJ Mobile service (Enterprise) 275,146 646,650   371,504  
IIJ Mobile MVNO Platform Service*2 136,160 418,098   281,938  
Others 1,285 1,066   (219 )
Internet connectivity services (Consumer) 1,078,798 1,346,477   267,679  
IIJ 926,873 1,207,184   280,311  
IIJmio High Speed Mobile Service*3 604,586 874,852   270,266  
hi-ho 151,925 139,293   (12,632 )
Total contracted bandwidth*4 1,982.4Gbps 2,371.8Gbps 389.4Gbps

*1. Numbers in the table above show number of contracts except for "IIJ Mobile service (Enterprise)," "IIJ" and "hi-ho" which show number of subscriptions.

*2. From 1Q16, the number of subscription for "IIJ Mobile MVNO Platform Service", which is included in "IIJ Mobile service (Enterprise)", is disclosed.

*3. From 1Q16, the number of subscription for "IIJmio High Speed Mobile Service", which is included in "Internet connectivity services (Consumer)" provided by IIJ, is disclosed.

*4. Regarding IP service, data center connectivity service and IIJ FiberAccess/F and IIJ DSL/F of Internet connectivity services (Enterprise), total contracted bandwidths are calculated by multiplying number of contracts by contracted bandwidths respectively.

SI revenues were JPY25,768 million, up 8.6% YoY (JPY23,725 million for 1H15).

Systems construction revenue, a one-time revenue, was JPY8,583 million, up 12.3% YoY. Systems operation and maintenance revenue, a recurring revenue, was JPY17,185 million, up 6.9% YoY, mainly due to an increase in private cloud services revenues although certain relatively large systems operation and maintenance projects were cancelled .

Orders received for SI and equipment sales totaled JPY34,516 million, up 20.1% YoY; orders received for systems construction and equipment sales were JPY13,321 million, up 0.4% YoY and orders received for systems operation and maintenance were JPY21,194 million, up 37.0% YoY.

Order backlog for SI and equipment sales as of September 30, 2016 amounted to JPY40,926 million, up 26.2% YoY; order backlog for systems construction and equipment sales was JPY9,349 million, up 7.2% YoY and order backlog for systems operation and maintenance was JPY31,577 million, up 33.2% YoY.

Equipment sales revenues were JPY1,467 million, down 10.5% YoY (JPY1,638 million for 1H15).

ATM operation business revenues were JPY2,052 million, up 4.2% YoY (JPY1,971 million for 1H15). As of September 30, 2016, 1,066 ATMs have been placed.

Cost and expense

Total cost of revenues was JPY62,275 million, up 16.1% YoY (JPY53,626 million for 1H15).

Cost of network services revenue was JPY36,715 million, up 20.4% YoY (JPY30,501 million for 1H15). The increase was mainly because outsourcing-related costs increased along with the increase in mobile-related revenue and circuit-related costs increased along with the increase in WAN services revenue. Gross margin was JPY8,120 million, up 8.3% YoY and gross margin ratio was 18.1% compared to 19.7% in 1H15.

Cost of SI revenues was JPY22,993 million, up 13.0% YoY (JPY20,341 million for 1H15). There were increases in outsourcing-related and purchasing-related along with the revenue increase, personnel-related costs and network operation related costs increased mainly with the service launch of "IIJ GIO Infrastructure P2". Gross margin was JPY2,775 million, down 18.0% YoY and gross margin ratio was 10.8% compared to 14.3% in 1H15.

Cost of equipment sales revenues was JPY1,343 million, down 9.3% YoY (JPY1,480 million for 1H15). Gross margin was JPY124 million and gross margin ratio was 8.4% compared to 9.6% in 1H15.

Cost of ATM o peration b usiness revenues was JPY1,224 million, down 6.2% YoY (JPY1,304 million for 1H15). Gross margin was JPY829 million and gross margin ratio was 40.4% compared to 33.8% in 1H15.

SG&A and R&D expenses

SG&A and R&D expenses in total were JPY9,900 million, up 8.3% YoY (JPY9,145 million for 1H15).

Sales and marketing expenses were JPY5,636 million, up 9.1% YoY (JPY5,166 million for 1H15). There were increases in sales commission expenses and advertising expenses.

General and administrative expenses were JPY4,020 million, up 7.3% YoY (JPY3,747 million for 1H15). There were increases in office rent expenses, commission expenses and taxes and public dues.

Research and development expenses were JP244 million, up 5.3% YoY (JPY232 million for 1H15).

Operating income

Operating income was JPY1,948 million, down 24.0% YoY (JPY2,563 million for 1H15).

Other income (expenses)

Other income (expenses) was an income of JPY157 million (an income of JPY84 million for 1H15), mainly because of net gain on sales of other investments of JPY214 million, distribution from fund investment of JPY120 million (included in other-net, JPY115 million for 1H15), dividend income of JPY91 million from other investments (JPY74 million for 1H15), interest expense of JPY142 million (JPY112 million for 1H15) and foreign exchange losses of JPY106 million (JPY14 million for 1H15).

Income before income tax expenses

Income before income tax expenses was JPY2,105 million, down 20.5% YoY (JPY2,647 million for 1H15).

Net income

Income tax expense was JPY954 million (JPY1,040 million for 1H15).

Equity in net income of equity method investees was JPY42 million (JPY137 million for 1H15) mainly due to net income of Internet Multifeed Co.

As a result of the above, net income was JPY1,193 million, down 31.6% YoY (JPY1,744 million for 1H15).

Net income attributable to IIJ

Net income attributable to non-controlling interests was JPY85 million mainly related to net income of Trust Networks Inc. (JPY92 million for 1H15).

Net income attributable to IIJ was JPY1,108 million, down 33.0% YoY (JPY1,652 million for 1H15).

1H16 Balance Sheets and Cash Flows

Balance sheets

As of September 30, 2016, the balance of total assets was JPY123,113 million, increased by JPY5,278 million from the balance as of March 31, 2016 of JPY117,835 million.

As for current assets as of September 30, 2016, as compared to the respective balances as of March 31, 2016, prepaid expenses increased by JPY1,370 million and inventories increased by JPY704 million. As for noncurrent assets as of September 30, 2016, as compared to the respective balances as of March 31, 2016, property and equipment increased by JPY2,288 million and prepaid expenses-noncurrent increased by JPY781 million. As for liabilities as of September 30, 2016, as compared to the respective balance as of March 31, 2016, long-term borrowings increased by JPY3,000 million.

As for the balances of capital lease obligations as of September 30, 2016, as compared to the respective balances as of March 31, 2016, capital lease obligations-current portion increased by JPY328 million to JPY4,283 million and capital lease obligations-noncurrent increased by JPY1,119 million to JPY8,899 million.

As of September 30, 2016, the balance of other investments increased by JPY824 million to JPY6,772 million mainly due to change an increase in the fair value of available-for-sale securities. The breakdown of other investments were JPY4,570 million in available-for-sale securities, JPY1,124 million in nonmarketable equity securities and JPY1,078 million in investments in funds, including some through a trust.

As of September 30, 2016, the breakdown of major non-amortized intangible assets were JPY6,170 million in goodwill and JPY96 million in trademark. The balance of amortized intangible assets, which was customer relationships, was JPY3,227 million.

Total IIJ shareholders' equity as of September 30, 2016 compared to the balance as of March 31, 2016, increased by JPY679 million to JPY65,524 million. IIJ shareholders' equity ratio (total IIJ shareholders' equity divided by total assets) as of September 30, 2016 was 53.2%.

Cash flows

Cash and cash equivalents as of September 30, 2016 were JPY19,668 million. (JPY20,098 million as of September 30, 2015.)

Net cash provided by operating activities for 1H16 was JPY4,073 million (net cash provided by operating activities of JPY6,080 million for 1H15.) There were net income of JPY1,193 million, depreciation and amortization of JPY5,284 million and net cash out flow of JPY2,747 million from changes in operating assets and liabilities (JPY584 for 1H15). There were an increase in prepaid expenses (including prepaid expenses-noncurrent) mainly along with an increase in maintenance for service facilities and systems integration projects.

Net cash used in investing activities for 1H16 was JPY3,896 million (net cash used in investing activities of JPY4,565 million for 1H15), mainly due to payments for purchase of property and equipment of JPY5,358 million (JPY5,321 million for 1H15) and proceeds from sales of property and equipment, which include sales and leaseback, of JPY1,209 million (JPY490 million for 1H15).

Net cash provided by financing activities for 1H16 was JPY155 million (net cash used in financing activities of JPY2,525 million for 1H15), mainly due to proceeds from long-term borrowings of JPY3,000 million, principal payments under capital leases of JPY2,314 million (JPY2,020 million for 1H15) and FY2015 year-end dividends payments of JPY505 million (JPY505 million for 1H15).

FY2016 Financial Targets

On November 4, 2016, we revised our financial targets for FY2016 which was announced on May 13, 2016. Please refer to our disclosure document titled "IIJ Revises its First Half and Full-Year Financial Targets for FY2016" for details.

Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.
Adjusted EBITDA
  1H15 1H16
  JPY millions JPY millions
Adjusted EBITDA   7,363     7,232  
Depreciation and Amortization*1   (4,800 )   (5,284 )
Operating Income   2,563     1,948  
Other Income     84     157  
Income Tax Expense   1,040     954  
Equity in Net Income of Equity Method Investees   137     42  
Net income   1,744     1,193  
Less: Net income attributable to noncontrolling interests   (92 )   (85 )
Net Income attributable to IIJ   1,652     1,108  

*1 Depreciation and amortization includes impairment loss on other intangible assets. (See IIJ's consolidated financial statements for details)
CAPEX
  1H15 1H16
  JPY millions JPY millions
CAPEX, including capital leases 7,943 8,372
Acquisition of Assets by Entering into Capital Leases 2,622 3,792
Purchase of Property and Equipment 5,321 4,580

Presentation

Presentation materials will be posted on our web site (http://www.iij.ad.jp/en/ir/) on November 8, 2016.

About Internet Initiative Japan Inc.

Founded in 1992, IIJ is one of Japan's leading Internet-access and comprehensive network solutions providers. IIJ and its group companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality Internet connectivity services, systems integration, cloud computing services, security services and mobile services. Moreover, IIJ has built one of the largest Internet backbone networks in Japan that is connected to the United States, the United Kingdom and Asia. IIJ listed on the U.S. NASDAQ Stock Market in 1999 and on the First Section of the Tokyo Stock Exchange in 2006.

For inquiries, contact:

IIJ Investor RelationsTel: +81-3-5205-6500 E-mail: ir@iij.ad.jp URL: http://www.iij.ad.jp/en/ir

Statements made in this press release regarding IIJ's or management's intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ's and managements' current expectations, assumptions, estimates and projections about its business and the industry. These forward-looking statements, such as statements regarding FY2016 revenues and operating and net profitability, are subject to various risks, uncertainties and other factors that could cause IIJ's actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ's ability to maintain and increase revenues from higher-margin services such as systems integration and outsourcing services; the possibility that revenues from connectivity services may decline substantially as a result of competition and other factors; the ability to compete in a rapidly evolving and competitive marketplace; the impact on IIJ's profits of fluctuations in costs such as backbone costs and subcontractor costs; the impact on IIJ's profits of fluctuations in the price of available-for-sale securities; the impact of technological changes in its industry; IIJ's ability to raise additional capital to cover its indebtedness; the possibility that NTT, IIJ's largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.
Internet Initiative Japan Inc.
Consolidated Balance Sheets (Unaudited)
(As of March 31, 2016 and September 30, 2016)
 
  As of March 31, 2016   As of September 30, 2016  
  Thousands of JPY   Thousands of JPY  
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   19,569,095       19,667,822    
Accounts receivable, net of allowance for doubtful accounts of JPY 74,229 thousand and JPY 75,142 thousand at March 31, 2016 and September 30, 2016, respectively   23,746,683       23,161,168    
Inventories   2,003,573       2,707,499    
Prepaid expenses—current   4,769,988       6,139,576    
Deferred tax assets—current   1,481,651       1,101,955    
Other current assets, net of allowance for doubtful accounts of JPY 15,693 thousand and JPY 15,193 thousand at March 31, 2016 and September 30, 2016, respectively   1,834,951       2,801,455    
Total current assets   53,405,941       55,579,475    
INVESTMENTS IN EQUITY METHOD INVESTEES   2,979,652       2,938,200    
OTHER INVESTMENTS   5,948,741       6,772,245    
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 45,345,543 thousand and JPY 47,857,557 thousand at March 31, 2016 and September 30, 2016, respectively   34,324,150       36,612,558    
GOODWILL   6,169,609       6,169,609    
OTHER INTANGIBLE ASSETS—Net   3,549,459       3,359,032    
GUARANTEE DEPOSITS   3,084,681       3,039,743    
DEFERRED TAX ASSETS—Noncurrent   224,316       212,865    
NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent   2,444,848       2,145,676    
Prepaid expenses—Noncurrent   4,987,193       5,768,684    
OTHER ASSETS, net of allowance for doubtful accounts of JPY 61,593 thousand and JPY 61,733 thousand at March 31, 2016 and September 30, 2016, respectively   716,314       515,299    
TOTAL   117,834,904       123,113,386    
         
         
  As of March 31, 2016   As of September 30, 2016  
  Thousands of JPY   Thousands of JPY  
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Short-term borrowings   9,250,000       9,250,000    
Capital lease obligations—current portion   3,954,386       4,282,781    
Accounts payable—trade   13,906,703       14,391,744    
Accounts payable—other   1,497,767       1,254,427    
Income taxes payable   1,078,412       485,186    
Accrued expenses   2,932,653       2,867,174    
Deferred income—current   2,528,885       2,542,305    
Other current liabilities   917,300       1,006,430    
Total current liabilities   36,066,106       36,080,047    
LONG-TERM BORROWINGS   -       3,000,000    
CAPITAL LEASE OBLIGATIONS—Noncurrent   7,779,367       8,898,766    
ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent   3,581,426       3,691,580    
DEFERRED TAX LIABILITIES—Noncurrent   710,055       792,350    
DEFERRED INCOME—Noncurrent   3,092,562       3,193,888    
OTHER NONCURRENT LIABILITIES   1,261,413       1,374,496    
Total Liabilities   52,490,929       57,031,127    
COMMITMENTS AND CONTINGENCIES        
         
SHAREHOLDERS' EQUITY:        
Common-stock—authorized, 75,520,000 shares; issued and outstanding, 46,711,400 shares at March 31, 2016 and September 30, 2016, respectively   25,509,499       25,509,499    
Additional paid-in capital   36,059,833       36,088,351    
Retained earnings   2,471,276       3,073,730    
Accumulated other comprehensive income   1,196,669       1,244,592    
Treasury stock —758,709 shares held by the company at March 31, 2016 and September 30, 2016, respectively   (392,070 )     (392,070 )  
Total Internet Initiative Japan Inc. shareholders' equity   64,845,207       65,524,102    
NONCONTROLLING INTERESTS   498,768       558,157    
Total equity   65,343,975       66,082,259    
TOTAL   117,834,904       123,113,386    
         
         

Internet Initiative Japan Inc.
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Unaudited)
(For the six months ended September 30, 2015 and September 30, 2016)
 
  Six Months Ended    Six Months Ended   
  September 30, 2015   September 30, 2016  
  Thousands of JPY   Thousands of JPY  
REVENUES:        
Network services:        
Internet connectivity services (enterprise)   8,356,668       10,576,874    
Internet connectivity services (consumer)   6,596,559       10,328,320    
WAN services   12,557,807       13,288,712    
Outsourcing services   10,488,529       10,641,860    
Total   37,999,563       44,835,766    
Systems integration:        
Systems construction   7,643,200       8,583,419    
Systems operation and maintenance   16,082,385       17,184,907    
Total   23,725,585       25,768,326    
Equipment sales   1,638,023       1,466,658    
ATM operation business   1,970,563       2,052,520    
Total revenues   65,333,734       74,123,270    
COSTS AND EXPENSES:        
Cost of network services   30,501,305       36,715,290    
Cost of systems integration   20,340,583       22,992,923    
Cost of equipment sales   1,480,124       1,343,117    
Cost of ATM operation business   1,304,136       1,223,494    
Total costs   53,626,148       62,274,824    
Sales and marketing   5,165,482       5,635,948    
General and administrative   3,746,825       4,020,356    
Research and development   232,194       244,440    
Total costs and expenses   62,770,649       72,175,568    
OPERATING INCOME   2,563,085       1,947,702    
OTHER INCOME (EXPENSES):        
Dividend income   74,208       91,407    
Interest income   11,112       18,518    
Interest expense   (111,560 )     (142,345 )  
Foreign exchange gain (loss), net   (14,066 )     (105,916 )  
Net gain on sales of other investments   -       213,938    
Impairment of other investments   -       (30,554 )  
Other —net   124,178       112,605    
Other income—net   83,872       157,653    
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES   2,646,957       2,105,355    
INCOME TAX EXPENSE    1,039,885       953,678    
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES   137,401       41,646    
NET INCOME   1,744,473       1,193,323    
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (91,974 )     (85,389 )  
NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC.   1,652,499       1,107,934    
         
         
  Six Months Ended    Six Months Ended   
  September 30, 2015   September 30, 2016  
NET INCOME PER SHARE        
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares)   45,947,519       45,952,691    
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares)   46,035,832       46,065,072    
BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs)   91,895,038       91,905,382    
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs)   92,071,664       92,130,144    
BASIC NET INCOME PER SHARE  (JPY)   35.96       24.11    
DILUTED NET INCOME PER SHARE  (JPY)   35.90       24.05    
BASIC NET INCOME PER ADS  EQUIVALENT  (JPY)   17.98       12.06    
DILUTED NET INCOME PER ADS  EQUIVALENT  (JPY)   17.95       12.03    
         
 
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)      
  Six Months Ended    Six Months Ended   
  September 30, 2015   September 30, 2016  
  Thousands of JPY   Thousands of JPY  
NET INCOME   1,744,473       1,193,323    
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:        
Foreign currency translation adjustments   20,692       (410,090 )  
Unrealized holding gain (loss) on securities   (175,575 )     450,761    
Defined benefit pension plans   (831 )     7,252    
TOTAL COMPREHENSIVE INCOME    1,588,759       1,241,246    
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (95,932 )     (85,389 )  
COMPREHENSIVE INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC.   1,492,827       1,155,857    
         

 
Internet Initiative Japan Inc.
Consolidated Statements of Cash Flows (Unaudited)
(For the six months ended September 30, 2015 and September 30, 2016)
 
  Six Months Ended   Six Months Ended  
  September 30, 2015   September 30, 2016  
  Thousands of JPY   Thousands of JPY  
OPERATING ACTIVITIES:        
Net income   1,744,473       1,193,323    
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   4,800,290       5,283,504    
Provision for retirement and pension costs, less payments   70,410       122,446    
Provision for allowance for doubtful accounts   23,312       5,133    
Gain on sales of property and equipment   (20,942 )     (7,704 )  
Loss on disposal of property and equipment   31,852       35,656    
Net gain on sales of other investments   -       (213,938 )  
Impairment of other investments   -       30,554    
Foreign exchange loss, net   984       83,098    
Equity in net loss (income) of equity method investees, less dividends received   (88,891 )     9,436    
Deferred income tax expense   117,673       283,182    
Others   (15,046 )     (5,180 )  
Changes in operating assets and liabilities:        
Decrease in accounts receivable   2,165,231       495,836    
Decrease (increase) in net investment in sales-type lease — noncurrent   (3,263 )     299,172    
Increase in inventories   (829,251 )     (712,514 )  
Increase in prepaid expenses   (1,166,908 )     (1,407,533 )  
Increase in other current and noncurrent assets   (284,569 )     (1,684,572 )  
Increase (decrease) in accounts payable   (352,766 )     518,161    
Increase (decrease) in income taxes payable   299,927       (592,886 )  
Increase (decrease) in accrued expenses   160,381       (46,417 )  
Increase in deferred income—current   214,092       48,007    
Increase (decrease) in deferred income—noncurrent   (63,742 )     123,300    
Increase (decrease) in other current and noncurrent liabilities   (723,169 )     212,789    
Net cash provided by operating activities   6,080,078       4,072,853    
INVESTING ACTIVITIES:        
Purchase of property and equipment   (5,321,194 )     (5,358,105 )  
Proceeds from sales of property and equipment   489,963       1,209,468    
Purchase of available-for-sale securities   (59,490 )     -    
Purchase of other investments   (246,982 )     (287,058 )  
Investment in an equity method investee   (39,974 )     -    
Proceeds from sales of available-for-sale securities   141,235       -    
Proceeds from sales of other investments   302,906       304,542    
Payments of guarantee deposits   (17,062 )     (14,403 )  
Refund of guarantee deposits   4,318       77,476    
Payments for refundable insurance policies   (28,181 )     (28,181 )  
Refund from insurance policies   10,108       -    
Proceeds from subsidies   200,000       200,000    
Other   (678 )     -    
Net cash used in investing activities   (4,565,031 )     (3,896,261 )  
  Six Months Ended    Six Months Ended   
  September 30, 2015   September 30, 2016  
  Thousands of JPY   Thousands of JPY  
FINANCING ACTIVITIES:        
Proceeds from issuance of short-term borrowings with initial maturities over three months and long-term borrowings   1,500,000       3,000,000    
Repayments of short-term borrowings with initial maturities over three months and long-term borrowings   (1,500,000 )     -    
Principal payments under capital leases   (2,019,755 )     (2,313,763 )  
Dividends paid   (505,365 )     (505,480 )  
Other   10       (26,000 )  
Net cash provided by (used in) financing activities   (2,525,110 )     154,757    
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   14,899       (232,622 )  
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (995,164 )     98,727    
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD   21,093,633       19,569,095    
CASH AND CASH EQUIVALENTS, END OF THE PERIOD   20,098,469       19,667,822    
         
ADDITIONAL CASH FLOW INFORMATION:        
Interest paid   111,834       142,045    
Income taxes paid   657,294       1,333,495    
         
NONCASH INVESTING AND FINANCING ACTIVITIES:        
Acquisition of assets by entering into capital leases   2,622,120       3,792,166    
Facilities purchase liabilities   2,411,321       1,254,427    
Asset retirement obligation   7,349       -    
         
         

Going Concern Assumption (Unaudited)
Nothing to be reported.
 
Material Changes In Shareholders' Equity   (Unaudited)  
Nothing to be reported.
 
Segment Information (Unaudited)
Business Segments:
Revenues:    
  Six Months Ended  Six Months Ended 
  September 30, 2015 September 30, 2016
  Thousands of JPY Thousands of JPY
Network service and systems integration business   63,557,271     72,257,102  
  Customers   63,363,171     72,070,750  
  Intersegment   194,100     186,352  
ATM operation business   1,970,563     2,052,520  
  Customers   1,970,563     2,052,520  
  Intersegment   -     -  
Elimination   (194,100 )   (186,352 )
Consolidated total   65,333,734     74,123,270  
Segment profit or loss:    
  Six Months Ended  Six Months Ended 
  September 30, 2015 September 30, 2016
  Thousands of JPY Thousands of JPY
Network service and systems integration business   2,056,041     1,280,776  
ATM operation business   576,450     734,373  
Elimination   (69,406 )   (67,447 )
Consolidated operating income   2,563,085     1,947,702  
 
Geographic information is not presented due to immateriality of revenue attributable to international operations.
 
Subsequent Events (Unaudited)
Repurchase of IIJ's Common Shares
IIJ's Board of Directors has resolved on November 4, 2016 to repurchase its own shares pursuant to Article 156, Paragraph 1 of the Corporation Law as applied pursuant to Article 165, Paragraph 3 of the Corporation Law and IIJ's Article of Incorporation.
 
Outline of repurchase
  (1) Type of shares to be repurchased: Common stock of IIJ
  (2) Total number of shares to be repurchased: Up to 950,000 shares
  (3) Total amount to be repurchased: Up to JPY 1,500,000,000
  (4) Period of repurchase: From November 7, 2016 to January 31, 2017
  (5) Method of repurchase: Open market purchase at the Tokyo Stock Exchange

Second Quarter FY2016 Consolidated Financial Results (3 months)

The following tables are highlight data of 2nd Quarter FY2016 (3 months) consolidated financial results (unaudited, for the three months ended September 30, 2016).
Operating Results Summary
  2Q15 2Q16 YoY % Change
  JPY millions JPY millions  
Total Revenues: 33,870 37,944   12.0  
Network Services 19,519 22,761   16.6  
Systems Integration (SI) 12,652 13,402   5.9  
Equipment Sales 692 737   6.5  
ATM Operation Business 1,007 1,044   3.7  
Cost of Revenues: 27,821 31,878   14.6  
Network Services 15,799 18,685   18.3  
Systems Integration (SI) 10,750 11,900   10.7  
Equipment Sales 622 678   9.1  
ATM Operation Business 650 615   (5.4 )
SG&A Expenses and R&D 4,627 4,955   7.1  
Operating Income 1,422 1,111   (21.9 )
Income before Income Tax Expense 1,369 1,111   (18.8 )
Net Income attributable to IIJ 931 579   (37.9 )

Network Service Revenue Breakdown
  2Q15 2Q16 YoY % Change
  JPY millions JPY millions  
Internet Connectivity Service (Enterprise) 4,289 5,529   28.9  
IP Service*1 2,432 2,472   1.6  
IIJ FiberAccess/F and IIJ DSL/F 767 757   (1.2 )
IIJ Mobile Service 1,023 2,243   119.3  
IIJ Mobile MVNO Platform Service*2 407 1,450   256.8  
Others 67 57   (15.2 )
Internet Connectivity Service (Consumer) 3,495 5,332   52.6  
IIJ*2 2,843 4,796   68.7  
IIJmio High Speed Mobile Service*3 2,471 4,171   68.8  
hi-ho 652 536   (17.8 )
WAN Services 6,342 6,559   3.4  
Outsourcing Services 5,393 5,341   (1.0 )
Network Services Revenues 19,519 22,761   16.6  

*1 IP service revenues include revenues from the data center connectivity service.*2 From 1Q16, the revenue from "IIJ Mobile MVNO Platform Service", which is included in "IIJ Mobile service (Enterprise)", is disclosed. "IIJ Mobile MVNO Platform Service" provides MVNO platform to our MVNE clients.*3 From 1Q16, the revenue from "IIJmio High Speed Mobile Services", which is included in "Internet connectivity services (Consumer)" provided by IIJ, is disclosed.

Reconciliation of Non-GAAP Financial Measures (2nd Quarter FY2016 (3 months))

The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP.
Adjusted EBITDA
  2Q15 2Q16
  JPY millions JPY millions
Adjusted EBITDA   3,883     3,782  
Depreciation and Amortization   (2,461 )   (2,671 )
Operating Income   1,422     1,111  
Other Income (Expense)   (53 )   0  
Income Tax Expense (Benefit)   479     514  
Equity in Net Income of Equity Method Investees   76     25  
Net income   966     622  
Less: Net income attributable to noncontrolling interests   (35 )   (43 )
Net Income attributable to IIJ   931     579  

The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP.
CAPEX
  2Q15 2Q16
  JPY millions JPY millions
CAPEX, including capital leases 4,923 3,684
Acquisition of Assets by Entering into Capital Leases 1,972 1,901
Purchase of Property and Equipment 2,951 1,783

 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income (Unaudited)
(Three Months ended September 30, 2015 and September 30, 2016)
 
  Three Months Ended   Three Months Ended  
  September 30, 2015     September 30, 2016  
  Thousands of JPY     Thousands of JPY  
REVENUES:          
Network services:          
Internet connectivity services (enterprise)   4,289,227         5,529,049    
Internet connectivity services (consumer)   3,494,511         5,332,251    
WAN services   6,341,720         6,559,111    
Outsourcing services   5,393,370         5,340,204    
Total   19,518,828         22,760,615    
Systems integration:          
Systems construction   4,440,655         4,905,052    
Systems operation and maintenance   8,211,211         8,496,968    
Total   12,651,866         13,402,020    
Equipment sales   692,133         736,959    
ATM operation business   1,007,306         1,044,425    
Total revenues   33,870,133         37,944,019    
COST AND EXPENSES:          
Cost of network services   15,799,290         18,685,058    
Cost of systems integration   10,749,482         11,899,354    
Cost of equipment sales   621,549         678,132    
Cost of ATM operation business   650,459         615,167    
Total costs   27,820,780         31,877,711    
Sales and marketing   2,658,398         2,869,451    
General and administrative   1,843,154         1,964,677    
Research and development   125,493         120,797    
Total costs and expenses   32,447,825         36,832,636    
OPERATING INCOME   1,422,308         1,111,383    
OTHER INCOME (EXPENSE):          
Dividend income   11,165         28,028    
Interest income   6,540         9,395    
Interest expense   (54,457 )       (73,188 )  
Foreign exchange gain (loss), net   (41,359 )       (15,416 )  
Impairment of other investments   -         (12,725 )  
Other—net   24,489         63,808    
Other expense—net   (53,622 )       (98 )  
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES   1,368,686         1,111,285    
INCOME TAX EXPENSE   478,584         513,589    
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES   75,932         24,911    
NET INCOME   966,034         622,607    
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (34,574 )       (43,932 )  
NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC.   931,460         578,675    
           
  Three Months Ended   Three Months Ended  
  September 30, 2015   September 30, 2016  
NET INCOME PER SHARE      
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares)   45,952,691       45,952,691    
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares)   46,041,718       46,070,091    
BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs)   91,905,382       91,905,382    
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs)   92,083,436       92,140,182    
BASIC NET INCOME PER SHARE  (JPY)   20.27       12.59    
DILUTED NET INCOME PER SHARE  (JPY)   20.23       12.56    
BASIC NET INCOME PER ADS EQUIVALENT (JPY)   10.13       6.30    
DILUTED NET INCOME PER ADS EQUIVALENT (JPY)   10.12       6.28    
 
 
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)
  Three Months Ended   Three Months Ended  
  September 30, 2015   September 30, 2016  
  Thousands of JPY   Thousands of JPY  
NET INCOME   966,034       622,607    
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:        
Foreign currency translation adjustments   71,961       (187,641 )  
Unrealized holding gain (loss) on securities   (297,361 )     329,515    
Defined benefit pension plans   (415 )     7,252    
TOTAL COMPREHENSIVE INCOME    740,219       771,733    
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (34,574 )     (43,932 )  
COMPREHENSIVE INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC.   705,645       727,801    

 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended September 30, 2015 and September 30, 2016)
 
  Three Months Ended   Three Months Ended   
  September 30, 2015   September 30, 2016  
  Thousands of JPY   Thousands of JPY  
OPERATING ACTIVITIES:        
Net income   966,034       622,607    
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   2,460,903       2,671,265    
Provision for retirement and pension costs, less payments   44,247       61,274    
Provision for allowance for doubtful accounts   8,397       3,710    
Gain on sales of property and equipment   (12 )     (2,279 )  
Loss on disposal of property and equipment   1,246       25,702    
Impairment of other investments   -       12,725    
Foreign exchange loss, net   24,947       10,096    
Equity in net income of equity method investees, less dividends received   (27,422 )     (24,911 )  
Deferred income tax expense (benefit)   6,275       (17,752 )  
Other   (6,751 )     3,840    
Changes in operating assets and liabilities:        
Increase in accounts receivable   (876,520 )     (1,178,146 )  
Decrease (increase) in net investment in sales-type lease — noncurrent   (102,666 )     115,363    
Increase in inventories   (380,874 )     (705,927 )  
Decrease in prepaid expenses   586,539       768,427    
Decrease (increase) in other current and noncurrent assets   106,878       (91,356 )  
Increase in accounts payable   1,228,380       2,597,815    
Increase in income taxes payable   593,540       243,137    
Decrease in accrued expenses   (41,136 )     (14,077 )  
Decrease in deferred income—current   (266,265 )     (241,201 )  
Increase (decrease) in deferred income—noncurrent   (8,939 )     18,789    
Decrease in other current and noncurrent liabilities   (734,523 )     (688,799 )  
Net cash provided by operating activities   3,582,278       4,190,302    
INVESTING ACTIVITIES:        
Purchase of property and equipment   (2,951,180 )     (2,273,574 )  
Proceeds from sales of property and equipment   271,363       805,078    
Purchase of available-for-sale securities   (47,312 )     -    
Purchase of other investments   (18,603 )     (249,262 )  
Investment in an equity method investee   (39,974 )     -    
Proceeds from sales of other investments   298,906       928    
Payments of guarantee deposits   (14,442 )     (12,379 )  
Refund of guarantee deposits   2,884       35,089    
Payments for refundable insurance policies   (14,090 )     (14,090 )  
Other   (12 )     -    
Net cash used in investing activities   (2,512,460 )     (1,708,210 )  
  Three Months Ended   Three Months Ended   
  September 30, 2015   September 30, 2016  
  Thousands of JPY   Thousands of JPY  
FINANCING ACTIVITIES:        
Proceeds from issuance of short-term borrowings with initial maturities over three months   (1,500,000 )     -    
Principal payments under capital leases   (985,700 )     (1,188,853 )  
Net decrease in short-term borrowings with initial maturities less than three months   1,500,000       -    
Other   10       -    
Net cash used in financing activities   (985,690 )     (1,188,853 )  
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   9,938       (129,908 )  
         
NET INCREASE IN CASH AND CASH EQUIVALENTS   94,066       1,163,331    
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD   20,004,403       18,504,491    
CASH AND CASH EQUIVALENTS, END OF THE PERIOD   20,098,469       19,667,822    
 

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the six months ended September 30, 2016 ("1H16") in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Six Months ended September 30, 2016 [Under accounting principles generally accepted in the United States ("U.S. GAAP")]

November 8, 2016Company name: Internet Initiative Japan Inc.Exchange listed: Tokyo Stock Exchange First SectionStock code number: 3774URL: http://www.iij.ad.jp/Representative: Eijiro Katsu, President and Representative DirectorContact: Akihisa Watai, Managing Director and CFOTEL: (03) 5205-6500Scheduled date for filing of quarterly report ( Shihanki -houkokusho) to Japan's regulatory organization: November 14, 2016Scheduled date for dividend payment: December 6, 2016Supplemental material on annual results: YesPresentation on quarterly report: Yes (for institutional investors and analysts)

(Amounts of less than JPY one million are rounded)

1. Consolidated Financial Results for the Six Months ended September 30, 2016(April 1, 2016 to September 30, 2016)
(1) Consolidated Results of Operations   (% shown is YoY change)
  Total revenues Operating income Income before income tax expense Net income attributable to IIJ
  JPY millions % JPY millions % JPY millions % JPY millions %
Six Months EndedSeptember 30, 2016 74,123 13.5 1,948   (24.0 ) 2,105   (20.5 ) 1,108   (33.0 )
Six Months EndedSeptember 30, 2015 65,334 14.3 2,563   6.1   2,647   6.2   1,652   14.4  

(Note1) Total comprehensive income attributable to IIJ
For the six months ended September 30, 2016: JPY1,156 million (down 22.6% YoY)
For the six months ended September 30, 2015: JPY1,493 million (up 177.5% YoY)
(Note2) Income before income tax expense represents income from operations before income tax expense and equity in net income in equity method investees, respectively, in IIJ's consolidated financial statements.

  Basic net incomeattributable to IIJ per share Diluted net income attributable to IIJ per share
  JPY JPY
Six Months EndedSeptember 30, 2016 24.11 24.05
Six Months EndedSeptember 30, 2015 35.96 35.90

(2) Consolidated Financial Position
  Total assets Total equity Total IIJ shareholders'equity Total IIJ shareholders'equity to total assets
  JPY millions JPY millions JPY millions %
As of September 30, 2016 123,113 66,082 65,524 53.2
As of March 31, 2016 117,835 65,344 64,845 55.0

2. Dividends
  Dividend per Shares
1Q-end 2Q-end 3Q-end Year-end Total
  JPY JPY JPY JPY JPY
Fiscal Year Ended March 31, 2016 - 11.00 - 11.00 22.00
Fiscal Year Ended March 31, 2017 - 13.50      
Fiscal Year Ending March 31, 2017 (forecast)     - 13.50 27.00

(Note) Change from the latest released dividend forecasts: No.

3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2017

(April 1, 2016 through March 31, 2017)     (% shown is YoY change)
  Total Revenues Operating Income Income beforeIncome Tax Expense (Benefit) Net Incomeattributable to IIJ Basic Net Incomeattributable to IIJper Share
  JPY millions % JPY millions % JPY millions % JPY millions % JPY
Fiscal Year EndingMarch 31, 2017 158,000 12.3 5,000   (18.6 ) 5,100   (17.7 ) 3,000   (25.7 ) 65.67

(Note1) Changes from the latest forecasts released: No

* Notes
(1) Changes in significant subsidiaries for the six months ended September 30, 2016
(Changes in significant subsidiaries for the six months ended September 30, 2016 which resulted in changes in scope of consolidation): None
 
(2) Application of simplified or exceptional accounting: No
 
(3) Changes in significant accounting and reporting policies for the consolidated financial statements
1) Changes due to the revision of accounting standards: No
2) Others: No
 
(4) Number of shares outstanding (shares of common stock)
1) The number of shares outstanding (inclusive of treasury stock):
As of September 30, 2016: 46,711,400 shares
As of March 31, 2016: 46,711,400 shares
2) The number of treasury stock:
As of September 30, 2016: 758,709 shares
As of March 31, 2016: 758,709 shares
3) The weighted average number of shares outstanding:
For the six months ended September 30, 2016: 45,952,691 shares
For the six months ended September 30, 2015: 45,947,519 shares
 
(5) Regarding the basic net income attributable to IIJ per share and share buyback:
The basic net income attributable to IIJ per share for the fiscal year ending March 31, 2017 disclosed in this document is calculated based on the assumption that 950,000 shares of IIJ's own shares to be repurchased by us during the period disclosed in our disclosure titled "Notice Regarding Repurchase of Own Shares of Internet Initiative Japan Inc." which was announced on November 4, 2016.

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